So the joys of an Irish summer are upon us, staycations are the new norm. Townies, like me, are visiting the countryside for the first time since Glenroe was cancelled. Meanwhile, I find more of my country cousins are visiting our glorious capital for a few nights break. It appears we are all united in our endeavours to boost our tourism industry.
On February 12 of this year, the MSCI World Index recorded a closing high at 2,434.95. Over the following 4 months the following events occurred;
Driven by the advent of the COVID-19 virus—the equity market fell from the aforementioned high to finish in bear market territory in just 16 days. This event is unprecedented.
On March 23 the market closed down c.34% from its peak. This may or may not have been the market bottom. But as you know that is not predictable nor is it that relevant. The point is that a 34% decline from a previous all-time high in such a short period is also without historical precedent.
These steep drops were immediately followed by the best 50 days in the history of equity markets.
I could go on....
There is an infinite number of economists and strategists in financial institutions in this country and around the world. It is not unfair to say that each and all of the events cited above were forecast by exactly none of them.
And yet, despite this, your inbox is filling up with invitations to hear, see and read these same highly educated, well paid, well-meaning “experts” as they share with us their market outlooks! And, hundreds of thousands of investors & advisers will be listening to this white noise—this reading of tea leaves and of horoscopes!
As I have often pointed out, the key lesson in all that is normal is that the short to intermediate-term course of the economy and of the markets is impossible to predict and that as a result, any such short term outlook is not helpful to creating an investment plan to dovetail with your financial plan.
Therefore as such, the following of any short to intermediate-term market commentary or predictions increases the risk that either we as advisors or indeed you, our clients will react to unforeseen market movements. And when you react, all bets are off and dials begin to fall.
I do not know what the economy and/or markets are going to do next. We can have a good idea—in concept if not in specific terms—of what they will ultimately do. And it's for those ultimate outcomes, years and decades from now, that serious people are investing.
I believe that all long term successful investing is essentially goal-focused and planning-driven. All failed investing is market-focused and event-driven. Stated another way: every truly successful investor I've ever known was acting continuously to a long-term plan. Every failed investor I've known continually reacted to sudden and terrifying market shocks.
As a result, I've found that long-term investing success is only a function of the economy and the markets. It is a direct function of how the investor reacts—or, more properly, how he/she refuses to react.
You and I are long-term, goal-focused investors, acting on our plan with patience and discipline. The smaller part of what I do for clients is the crafting of that plan. The much larger part is helping you not to react in stressful times like this.
I continue to believe that the equity market can't be consistently forecast, much less timed and that the only certain way of capturing equities' superior long-term returns is to sit through their occasionally steep but historically temporary declines.
Finally, I would urge you to think back to January 1 of this year. Have your most cherished lifetime financial goals changed since then? If not, I see no compelling reason to change your plan—and no reason at all to change your portfolio. I say this on the assumption that you have a long term financial plan.
Optimism remains, to me, the only long-term realism.